The case is sometimes reported as the largest class-action lawsuit against the U.S. in history, but the basis for this claim is a matter of dispute. Plaintiffs contend that the number of class members is around 500,000, while defendants maintain it is closer to 250,000. The potential liability of the U.S. government in the case is also disputed: plaintiffs have suggested a figure as high as $176 billion, and defendants have suggested a number in the low millions, at most. In 2008, the district court awarded the plaintiffs $455.6 million, which both sides have appealed. Cobell v. Kempthorne, 569 F. Supp.2d 223, 226 (D.D.C. 2008).

On December 8, 2009, a $3.4 billion settlement was announced.[1] $1.4 billion of the settlement is allocated to plaintiffs in the suit, and $2 billion is allocated for re-purchase of lands distributed under the Dawes Act.

Background

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Early Federal Indian law

The history of the Indian trust is inseparable from the larger context of the Federal government’s relationship with American Indians, and the policies that were promulgated as that relationship evolved. At its core, the Indian trust is an artifact of a nineteenth century Federal policy, and its current form bears the imprint of subsequent policy evolutions.

During the late 1800s, Congress and the Executive branch believed that the best way to foster assimilation of Indians was to "introduce among the Indians the customs and pursuits of civilized life and gradually absorb them into the mass of our citizens." (President Chester A. Arthur, Third Annual Message (on the Indian problem), 1884 ) Under the General Allotment Act of 1887 (the Dawes Act), tribal lands were divided into parcels between 40 and 160 acres (0.65 km2) in size. The total land area comprised by the allotments was small compared to the amount of land that had been held by tribes at the passage of the Act. The remaining Indian lands were declared surplus by the government and opened for non-Indian settlement.

Section 5 of the Dawes Act required the United States to “hold the land thus allotted, for the period of twenty-five years, in trust for the sole use and benefit of the Indian to whom such allotment shall have been made…” During the trust period, individual accounts were to be set up for each Indian with a stake in the allotted lands, and the lands would be managed for the benefit of the individual allottees. Indians could not sell, lease, or otherwise encumber their allotted lands without government approval. Where the tribes resisted allotment, it could be imposed. After twenty-five years, the allotted lands would become subject to taxation. Unfortunately, many allottees did not understand the tax system, or did not have the money to pay the taxes, and their land was lost.

Fruit of a failed policy

The early Indian trust system was not so much created as evolved from a series of adjustments to a policy that was gradually abandoned, then finally repealed. The allotment regime created by the Dawes Act was never intended to be a permanent fixture; it was supposed to transition gradually into fee simple ownership over a period of 25 years – or about one generation. The theory that Indians could be turned into farmers, working their allotted lands, however, was folly. Within a decade of passage of the Dawes Act, the policy began to be adjusted because of concerns about Indian competency to manage land and avoid predation. As late as 1928, there was extreme reluctance to grant fee patents to Indians – the Meriam Report advocated making Indian landowners undergo a probationary period to prove competence.

The early 1900s saw, through a series of statutes, the government’s trusteeship of these lands increasingly made a permanent arrangement – this is why Interior’s trusteeship is sometimes referred to as an “evolved trust.”

Apparently little thought was given at the time to the consequences of making permanent the heirship of allotments. Lands allotted to individual Indians were passed from generation to generation, just as any other family asset passes to heirs. Probate proceedings commonly dictated that land interests be divided equally among every eligible heir unless otherwise stated in a will. As wills were not, and are not, commonly used by Indians, the size of land interests continually diminished as they were passed from one heir to the next. An original allotted land parcel of 160 acres (0.65 km2) may now have more than 100 owners. While the parcel of land has not changed in size, each individual beneficiary has an undivided fractional interest in the 160 acres (0.65 km2).

For nearly one hundred years, the consequences of federal Indian allotments have developed into the problem of fractionation. As original allottees die, their heirs receive equal, undivided interests in the allottees’ lands. In successive generations, smaller undivided interests descend to the next generation. Fractionated interests in individual Indian allotted land continue to expand exponentially with each new generation. Today, there are approximately four million owner interests in the 10 million acres (40,000 km²) of individually owned trust lands, a situation the magnitude of which makes management of trust assets extremely difficult and costly. These four million interests could expand to 11 million interests by the year 2030 unless an aggressive approach to fractionation is taken. There are now single pieces of property with ownership interests that are less than 0.0000001% or 1/9 millionth of the whole interest, which has an estimated value of .004 cent.

The economic consequences of fractionation are severe. Some recent appraisal studies suggest that when the number of owners of a tract of land reaches between ten and twenty, the value of that tract drops to zero. Highly fractionated land is for all practical purposes worthless.

Fractionation of land and the resultant ballooning number of trust accounts quickly produced an administrative nightmare. Over the past 40 years, the area of trust land has grown by approximately 80,000 acres (320 km²) per year. Approximately 357 million dollars is collected annually from all sources of trust asset management, including coal sales, timber harvesting, oil and gas leases and other rights-of-way and lease activity. No single fiduciary institution has ever managed as many trust accounts as the Department of the Interior has managed over the last century.

Interior is involved in the management of 100,000 leases for individual Indians and tribes on trust land that encompasses approximately 56 million acres (230,000 km²). Leasing, use permits, sale revenues, and interest of approximately $226 million per year are collected for approximately 230,000 individual Indian money (IIM) accounts, and about $530 million per year are collected for approximately 1,400 tribal accounts. In addition, the trust currently manages approximately $2.8 billion in tribal funds and $400 million in individual Indian funds.

Under current regulations, probates need to be conducted for every account with trust assets, even those with balances between one cent and one dollar. While the average cost for a probate process exceeds $3,000, even a streamlined, expedited process costing as little as $500 would require almost $10,000,000 to probate the $5,700 in these accounts.

Unlike most private trusts, the Federal Government bears the entire cost of administering the Indian trust. As a result, the usual incentives found in the commercial sector for reducing the number of small or inactive accounts do not apply to the Indian trust. Similarly, the United States has not adopted many of the tools that States and local government entities have for ensuring that unclaimed or abandoned property is returned to productive use within the local community.

Fractionation is not a new issue. In the 1920s the Brookings Institute conducted the first major investigation of the impacts of fractionation. This report, which became known as the Meriam Report, was issued in 1928 and formed the basis for land reform provisions that were included in what would become the IRA. The original versions of the IRA included two key titles, one dealing with probate and the other with land consolidation. Because of opposition to many of these provisions in Indian Country, most of these provisions were removed and only a few basic land reform and probate measures were included in the final bill. Thus, although the IRA made major reforms in the structure of tribes and stopped the allotment process, it did not meaningfully address fractionation.

In 1922, the General Accounting Office (GAO) conducted an audit of 12 reservations to determine the severity of fractionation on those reservations. The GAO found that on the 12 reservations for which it compiled data, there were approximately 80,000 discrete owners but, because of fractionation, there were over a million ownership records associated with those owners. The GAO also found that if the land was physically divided by the fractional interests, many of these interests would represent less than one square foot of ground. In early 2002, the Department of the Interior attempted to replicate the audit methodology used by GAO and to update the GAO report data to assess the continued growth of fractionation and found that it grew by over 40% between 1992 and 2002.

As an example of continuing fractionation, consider a real tract identified in 1987 in Hodel v. Irving, 481 U.S. 704 (1987):

Tract 1305 is 40 acres (160,000 m2) and produces $1,080 in income annually. It is valued at $8,000. It has 439 owners, one-third of whom receive less than $.05 in annual rent and two-thirds of whom receive less than $1. The largest interest holder receives $82.85 annually. The common denominator used to compute fractional interests in the property is 3,394,923,840,000. The smallest heir receives $.01 every 177 years. If the tract were sold (assuming the 439 owners could agree) for its estimated $8,000 value, he would be entitled to $.000418. The administrative costs of handling this tract are estimated by the Bureau of Indian Affairs (BIA) at $17,560 annually. Today, this tract produces $2,000 in income annually and is valued at $22,000. It now has 505 owners but the common denominator used to compute fractional interests has grown to 220,670,049,600,000. If the tract were sold (assuming the 505 owners could agree) for its estimated $22,000 value, the smallest heir would now be entitled to $.00001824. The administrative costs of handling this tract in 2003 are estimated by the BIA at $42,800.

Fractionation continues to become significantly worse and, as pointed out above, in some cases the land is so highly fractionated that it can never be made productive because the ownership interests are so small it is nearly impossible to obtain the level of consent necessary to lease the land. In addition, to manage highly fractionated parcels of land, the government spends more money probating estates, maintaining title records, leasing the land, and attempting to manage and distribute tiny amounts of income to individual owners than is received in income from the land. In many cases the costs associated with managing these lands can be significantly more than the value of the underlying asset.

Criticisms of BIA management

Criticisms of the BIA's management of Indian trust assets ensued from almost the very beginning.

Due to a court order (at the request of the plaintiffs) in the litigation, portions of Interior's website, including the Bureau of Indian Affairs (BIA), were shut down beginning in December 2001[1]. BIA and other Interior bureaus and offices were reconnected to the Internet following a May 14, 2008, order of the D.C. District Court.

Early victories for plaintiffs

Cobell is at bottom an equity case, with plaintiffs contending that the Government is in breach of its trust duties to Indian beneficiaries. Plaintiffs seek relief in the form of a complete historical accounting of all Individual Indian Monies (IIM) accounts. While Cobell is technically not a money damages case – claims for money damages against the Government in excess of $10,000 must be brought in the United States Court of Federal Claims – plaintiffs contend that a complete accounting will show the IIM accounts to be misstated on the order of billions of dollars. If that contention were indeed supported by the Court, plaintiffs would leverage such a finding to seek an adjustment of all IIM account balances.

DOI’s Factual Stipulations (filed June 11, 1999)

1. [T]he Department of the Interior cannot provide all account holders with a quarterly report which provides the source of funds, and the gains and losses. [See 25 U.S.C. §4011.]

2. [T]he Department of the Interior does not adequately control the receipts and disbursements of all IIM account holders. [See id. §162a(d)(2).]

3. [T]he Department of the Interior’s periodic reconciliations are insufficient to assure the accuracy of all accounts. [See id. §162a(d)(3).]

4. [A]lthough the Department of the Interior makes available to all IIM account holders the daily balance of their account and can provide periodic statements of the account balances, the Department does not provide all account holders periodic statements of their account performance. [See id. §162a(d)(5).]

5. [The] Department of the Interior does not have written policies and procedures for all trust fund management and accounting functions. [See id. §162a(d)(6).]

6. [T]he Department of the Interior does not provide adequate staffing, supervision and training for all aspects of trust fund management and accounting. [See id. § 162a(d)(7).]

In December 1999 the District Court for the District of Columbia found for the plaintiffs and identified five specific breaches that warranted prospective relief:

1. The Secretary of the Interior Had No Written Plan to Gather Missing Data

2. The Secretary of the Interior Had No Written Plan Addressing the Retention of IIM-Related Trust Documents Necessary to Render an Accounting

3. The Secretary of the Interior Had No Written Architecture Plan

4. The Secretary of the Interior Had No Written Plan Addressing the Staffing of Interior’s Trust Management Functions

5. The Secretary of the Treasury Had Breached His Fiduciary Duty to Retain IIM-Related Trust Documents and Had No Remedial Plan to Address This Breach of Duty

This decision was upheld by Court of Appeals in February 2001.

In June 2001 Secretary of the Interior Norton issued a directive creating the Office of Historical Trust Accounting (OHTA), “to plan, organize, direct, and execute the historical accounting of Individual Indian Money Trust (IIM) accounts,” as mandated by both the Court and the 1994 Act.

Contempt trials

Lamberth removed

On July 11, 2006, the U.S. Court of Appeals for the District of Columbia Circuit, siding with the government, removed Judge Lamberth from the case – finding that Lamberth had lost his objectivity. "We conclude, reluctantly, that this is one of those rare cases in which reassignment is necessary," the judges wrote.

Lamberth, a Ronald Reagan appointee known for speaking his mind, repeatedly ruled for the Native Americans in their class-action lawsuit. His opinions condemned the government and found Interior Secretaries Gale Norton and Bruce Babbitt in contempt of court for their handling of the case. The appellate court reversed Lamberth several times, including the contempt charge against Norton. After a particularly harsh opinion in 2005, in which Lamberth lambasted the Interior Department as racist, the government petitioned the Court of Appeals to remove Lamberth, saying he was too biased to continue with the case.

The Appeals Court concluded that some of Judge Lamberth's statements went too far, and "on several occasions the district court or its appointees exceeded the role of impartial arbiter." The Court wrote that Lamberth believed that racism at Interior continued and is "a dinosaur – the morally and culturally oblivious hand-me-down of a disgracefully racist and imperialist government that should have been buried a century ago, the last pathetic outpost of the indifference and anglocentrism we thought we had left behind."

The Appeals Court ordered the case reassigned to another judge [December 7, 2006. Case reassigned to Judge James Robertson for all further proceedings].

Internet Reconnection

On May 14, 2008, Judge James Robertson issued an order allowing five offices and bureau of the Department of Interior to be reconnected to the internet. The Office of the Solicitor, the Bureau of Indian Affairs, the Office of Hearings and Appeals, the Office of the Special Trustee, and the Office of Historical Trust Accounting had been disconnected since December 17, 2001, when the government entered a Consent Order which stipulated how affected government offices could demonstrate proper compliance and reconnect to the internet. Judge Robertson's order vacated the Consent Order. In the following weeks, these offices and bureaus were reconnected and their websites again became publicly accessible.